“Ann Arbor is very fortunate,” said Swisher’s vice president Bart Wise. “I think it’s a combination of the university and some large corporations, but probably just as much or even more the unique, innovative, entrepreneurial companies. ... They have a huge impact on our economy.”

In its 20th year, the Swisher vacancy report surveys 315 buildings of 5,000 square feet or larger. The 2012 report shows vacancy rates decreased in five of eight submarkets. Some highlights:

The north office market — primarily the Plymouth Road corridor east to Domino’s Farms — had the largest vacancy decrease as four large office buildings had lease deals. The area has a 4.82 percent vacancy rate, which is the first single-digit vacancy in the area since 2005.

The east office market was hit the hardest in 2012 as several tenants moved to buildings in other Ann Arbor areas.

The region saw an 18 percent increase in the number of lender-owned and distressed building sales in 2012.

Other factors at play in 2012, the report shows, is the tightening of inventory as companies bought buildings to occupy and removed them from the leasing market. The declining vacancy also shows companies are hiring, which is reflective of the region’s 4.9 percent unemployment rate.

Mike Giraud of Swisher added: “I think, generally, it seems to me that companies have a growing feeling of confidence that the economy is turning around and they are starting to make some investments in brick-and-mortar.”

Brokers describe the north end of Ann Arbor and the downtown market as extremely tight as more companies look to move or expand in those areas.

Neal Warling of Jones Lang LaSalle said it’s difficult to find any available space over the 10,000-square-foot range in those markets. Downtown, some of the only remaining space of that size is the first-floor of 111 North Ashley and space in the One North Main building. On the north end, expansions by companies like Cole Taylor Mortgage and Domino’s Pizza this year tightened inventory.

The south side of town, Warling said, has the most opportunity for people looking for space.

“I think (in 2013), it’s going to be very difficult to place people who need space,” he said. “On the south side of town, there are some good buildings and good value down there, so if somebody is willing to go to the Briarwood market, there are opportunities.”

The vacancy rate on the south end of Ann Arbor, which is typically the most challenged submarket, increased from 14.12 percent in 2011 to 15.13 percent in 2012. Software company Infor moved to the north end of Ann Arbor this year, leaving 40,000 square feet vacant.

Data by Swisher Commercial

Wise said building owners are starting to recover from the recession, and rents are stabilizing and could start increasing in tight submarkets. If vacancy rates continue to drop and rental rates increase, the next step could be new office construction, although that’s not likely for several years.

“New construction has to compete with existing buildings, and if those existing buildings are still renting 15 to 20 percent below normal, it won’t happen,” Wise said.

Giraud noted that five city-owned sites could be developed in coming years and eventually bring new office space to the downtown market. But, he said, new construction is still “cost prohibitive” for developers — especially downtown where property is more expensive.

Signs of new office construction have slowly emerged in during the last year, as developers broke ground on an office building on Eisenhower Parkway that was stalled for years. Developers Jeff Helminski and Scott Marcus also announced plans to convert a warehouse on North Main Street into offices, although they are looking to secure tenants before moving forward with construction. Other developers have incorporated office space into mixed-use projects like Arbor Hills Crossing on Washtenaw, and proposed developments on Detroit Street and Plymouth Road.

To be sure, Ann Arbor commercial real estate activity improved in 2012, but companies and landlords are still cautious. Wise said leasing activity was up this year, but it’s still “not booming.”

“There’s still concern that events outside the local area, or even outside the country, could put us back into a very negative situation from an economic standpoint,” Giraud said.

Still, brokers are confident commercial real estate activity in 2013 will remain strong. Wise said the area could also experience less distressed building sales as leasing activity strengthens.

“Word is getting out that Ann Arbor is an attractive place to recruit new talent,” Warling said. “It has a real vibrancy going on with Google and companies like MyBuys, Menlo and others. I think that word is going to continue and demand is going to increase.”

Comments

Veracity

Mon, Dec 31, 2012 : 5:20 a.m.

Wise, Giraud Warn Against Connecting Williams Street Plan
In regards to the five properties involved in the Connecting Williams Street Plan, the DDA should seriously consider Swisher's vice president Bart Wise's observation in the above article that:
&quot;New construction has to compete with existing buildings, and if those existing buildings are still renting 15 to 20 percent below normal, it won't happen.&quot;
In addition, the DDA should take careful notice of Swisher's Mike Giraud's following cautions in the same article:
&quot;Giraud noted that five city-owned sites could be developed in coming years and eventually bring new office space to the downtown market. But, he said, new construction is still &quot;cost prohibitive&quot; for developers — especially downtown where property is more expensive.&quot;
and

Al

Sun, Dec 30, 2012 : 8:12 p.m.

This is a false positive for our city. The office rate went down because of subsidies and tax breaks, leading companies to Ann Arbor. Sounds great, until we realize that the city loses money for every new business because of this. Combined with the fact that we are managing in the red for last 4 years, and we are on the same path as Detroit about 20 years ago.

Kafkaland

Sun, Dec 30, 2012 : 6:36 p.m.

To put these numbers in context, nationally the vacancy rates for office space is 16%, and pre-recession it was around 12%. http://www.cbre.com/EN/aboutus/MediaCentre/2012/Pages/04092012.aspx. So we are doing very well in that regard, and I hope it translates into demand when the properties on and around William Street are developed.

LXIX

Sun, Dec 30, 2012 : 4:45 p.m.

&quot;Downtown Ann Arbor office vacancy fell to 9.78 percent in 2012 compared to 10.99 percent in 2011, spurred largely by Barracuda Networks' 45,000-square-foot lease deal on Maynard Street.&quot;
In 2011 the downtown vacancy rate was 10.99% or about 187,168 sq ft. Subtracting Barracuda's 45,000 would make the available square footage 142,168. About 24,348 less than the 166,516 currently stated.
The stark conclusion is that if it were not for a subsidized Barracuda move downtown the emptiness would have actually jumped by 24,348 sq ft to become 12.42% vacancy rate or an increase of +1.43% more space than last year.
The big story is that while one big fish moved in, a whole diversity of small fry left.
If there is such a great demand for office space downtown, as being purported by some, why is so much local business leaving?